OPINION:
The Government has held its nose and put its hand in the public's pocket.

Subsidising the production of big budget Hollywood movies is not anyone's idea of good policymaking. Prime Minister John Key and Economic Development Minister Steven Joyce are doing exactly what Mr Joyce has previously counselled against - participating in a "bidding war" for major movie productions.

The 15 per cent rebate the Government reluctantly offered to the producers of The Hobbit trilogy to ensure the Tolkien tale was filmed in this country has now become 25 per cent for the makers of the Avatar sequels and other big-budget productions. Who knows where it will end?

However, the harsh reality is that if the Government had not coughed up, the films, the jobs they create and the publicity they attract would probably have gone elsewhere.

Other industries have also, of course, had to contend with a fluctuating dollar and changing circumstances. The garment industry was decimated several decades ago by the removal of tariffs; other manufacturers found they could not compete with cheaper overseas labour or the subsidies offered in some jurisdictions.

No-one stepped in to help them. To do so would have been to distort the market, economic purists argued. Investment should be directed to areas where New Zealand enjoyed natural advantages.

A Cabinet paper released by the Government shows its economic advisers mounted similar arguments in the case of the film industry. The economic benefits of the existing scheme were small and further subsidies would only fuel future demands for even larger subsidies, Treasury said.

No doubt it is right, but New Zealanders have learned that the country is not operating in a computer- modelled universe in which all players can be relied upon to act rationally and fairly. It makes no sense for New Zealand to remain economically pure while Britain, Australia, Canada, South Africa and various US states are scrambling over each other to try to take what New Zealand already has.

As foreign rivals appreciate, the benefits of major film production extend beyond dollars and cents. The Lord of the Rings trilogy, created by a small army of skilled film technicians, fuelled a tourism boom and changed international perceptions of New Zealand.

Once best known for our sheep and rugby players, we became a nation of clever innovators who could beat Hollywood at its own game.

Avatar and the Hobbit movies have added to that reputation and further productions will do likewise.

The Government has done what had to be done to retain the tangible and intangible benefits of a film industry in this country.